New Cetera Owner Sounds Bullish on M&A

LOS ANGELES -- RCS Capital Holdings Executive Chairman Nick Schorsch, who's been roiling the independent broker-dealer space with aggressive acquisitions, sounded a bullish note on the M&A deal space at the Milken Institute annual conference here this week.

The size of top 10 M&A transactions globally has climbed steadily, accounting for 26% of total global deal volume last year, up from 14% in 2011 (according to numbers from Citibank and Dealogic). With that as context, Schorsch and four other big dealmakers weighed in on whether or not the uptick is sustainable.

After the moderator posed this question at the outset of the talk -- titled "Is there Mojo in M&A?" -- the speakers all held aloft auction-style paddles with the word "Mojo" on them; Schorsch, whose company closed its deal for Cetera Financial Group about an hour before he walked on stage Tuesday, raised his the highest.

'BORING' BUSINESSES

Schorsch, whose acquisitions make him the second-largest IBD player after LPL Financial in terms of number of advisors, told the audience that he thinks M&A deals will continue to grow -- but only in sectors that can provide predictability.

"You're looking at really boring businesses," said Schorsch -- a group he defined as including real estate and energy and power. "There's a lot of M&A that's been going on in very stable sectors. ... There's an aspect to it that is very scalable."

In all, RCS Capital has completed nearly $40 billion in M&A transactions since 2011, added Schorsch, who is also chairman and CEO of American Realty Capital, the country's largest sponsor of nontraded REITs.

Other speakers' views were also positive, but nuanced. Ray McGuire, global head of corporate and investment banking at Citi, said most M&A deals remain restricted to North America, Europe and Japan.

EXPECT BAD DEALS?

Jonathan Coslet, senior partner and chief investment officer at private equity firm TPG Capital, said lenders have fallen into some of the same bad habits that plagued them before the financial crisis. "Financing markets are absurdly robust," Coslet said. "All the things lenders said they wouldn't do after 2007 and 2008, they are all doing."

As a result, expect bad deals and too-high prices, Coslet cautioned.

The latter is a criticism that's been leveled at Schorsch. Many of his competitors atop the industry's large IBDs think he paid high prices for Cetera, First Allied, Investors Capital Holdings, Summit Financial Services and other firms.

In earlier interviews, Schorsch has defended the Cetera deal's price tag. "When you're buy a $1.15 billion [revenue] company, paying one times or .8 times -- which is what we actually paid, based on the 2014 run rate -- it's not a big price," Schorsch has said of the Cetera deal.

HOSTILE TAKEOVERS

Schorsch also said Tuesday that it was a good sign that the companies he acquired were not for sale, because it meant that no one was seeking to offload them. That points to another feature of the current M&A space, he said: Public companies are now more willing to do hostile takeovers than in the past.

That is keeping executives on their toes, he thinks. "You can come right over the wall and put a bear hug on the company," he said. "Those kinds of transactions make everyone think twice. ... It does make us sharper as a public company."

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